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Saturday, March 7, 2015

Inequality is a good thing (for the wealthy)

Recent research (summarized here) from UCLA's Fielding School of Public Health provides evidence that income inequality is associated with inequality in health. In particular, lower income is associated with "high levels of stress, exhaustion, cardiovascular disease, lower life expectancy and obesity." These factors alone could lead to lower economic growth than we would have if the work force were healthier.

Also important when thinking about the impacts on long-run growth are the potential intergenerational impacts. As Dr. Linda Rosenstock, the UCLA paper's senior author, noted, these health effects aren't limited to the parents -- children are also affected.

Does this matter for economic growth and intergenerational mobility? Some research says it does. Evidence from the Food Stamp program shows that healthier children contribute more to the economy later in life. In particular, children who had access to food stamps "grew up to be healthier and more productive than those who didn't, which means that they made a bigger economic contribution."

The authors also asked whether Affordable Care Act will reverse these trends, and found that the answer is uncertain. The rising number of people with health insurance due to Obamacare will lead to better health outcomes.

But at the same time, "early evidence suggests that the ACA is causing lower-income workers to have to pay more of the costs of care out of their cash compensation," which could lead to more stress and the negative health outcomes that come with it as lower-income households struggle to make ends meet each month.

What I find interesting is the argument that inequality, low intergenerational mobility and poor health are bad because they "slow economic growth" rather than just the fact that, well, I don't know, a rigid, hierarchical society comprised of poor and sick people is just wrong based on moral grounds! If we found that lots of poor sick people were just great for economic growth, would that then suddenly make such things okay?

It's a good example of the crazy, amoral world that the discipline of economics has taken us to. The only moral imperative is "economic growth," and everything must be measured solely by that yardstick. It's a sign that we've so internalized the insane, sociopathic logic of economic "science" that we nod like bobbleheads at arguments like this without even thinking about the underlying logic.

When I remark, as I often do, that all of our modern society is based around the philosophical idea of Productivism, this is what I mean. Productivism, as you recall, is "the belief that measurable economic productivity and growth are the [sole] purpose of human organization (e.g., work), and that 'more production is necessarily good'". [Wikipedia] To that definition, I would add, "and all other measures of human happiness and well-being, and moral imperatives, are subordinate to the needs of maximized production." Since production is organized by the impersonal, decentralized, anarchic Market, then we must all be subordinate to the Market's needs and attempt to obey its dictates. There is no higher moral imperative. We see the evidence above.

Now, of course, the notion that having lots of hungry, poor, suffering people is bad for a society, and hence, economic growth, is not a particularly new or strange one. But there may be increasing evidence that it is actually good for the rich in the society. That is, wealthy elites may actually prefer to live in a failing, low growth society, since despite the low growth, they will actually benefit!

Which brings me to a study from late last year. I personally believe this is one of the most important economic studies of recent times, although you're probably not heard of it.

It's from Branko Milanovic, an economist who has done extensive studies on global inequality through time and written an entire book about it. Why it's so important is because conventional wisdom usually assumes that elites will naturally want to increase the living standards for society as a whole. This is because a richer overall society means a larger pie, and since they own the largest share of that pie, they will be the prime beneficiaries of such a society. This is the assumption that economists commonly operate under, and have operated under for generations. They believe, like the economists above, that wealthy elites will act in rational ways and see that by immiserating the public, they will ultimately immiserate themselves as well.

What the study shows is something else. Rather, it shows that the increasing inequality and the related effects actually increases the wealth of the elites! This may not seem like a surprise to many of us, but having data to back it up is useful:

...growth rates in the period 1960-1970 were higher than those in the period 1990-2000 for all percentiles of income distribution except the richest 1%. Note that this change plausibly represents an understatement; the very rich – the real top 1% – are not well captured by the data...When we look at how state-level inequality is correlated with future growth rates at different percentiles of the income distribution across 49 states (leaving Alaska and DC, clear outliers, out of the analysis), we find a strong negative effect on the growth rate of the poor and an almost equally strong positive effect on the growth rate of the rich. (emphasis mine)

So extreme inequality is actually a good thing if you're rich! In other words, a rising tide may not lift all ships, but a falling tide actually lifts up the 50-foot yachts. As Milanovic has said (emphasis mine):

Let me put it in simple terms. Let's suppose I'm a guy who is poor. I live in Massachusetts in 1990. Then the rate of growth of my income between 1990 and 2000, would be negatively correlated with income inequality that existed in Massachusetts in 1990. So we do it across all fifty U.S. states. Obviously, overall growth rates have declined over the last 50 years; also the shape of the growth rates across various income levels (the poor, the middle, the rich) has changed, as you can see here in the graph, but the negative correlation between inequality and subsequent real income growth of the poor remains.

It used to be that the U.S. growth was pro-poor, in the sense, that the growth rates among the poor were higher than amongst the rich. Now it's the opposite. But that particular relationship between inequality and growth of the poor, we find it throughout the entire period. We can only speculate what are the reasons that make inequality be so bad, pernicious even, for the growth at low levels of income.

Now, when you move to the top of income distribution, the story changes. Inequality may not be bad for the rich; actually, it's positively correlated with their growth rates.So if you're really a rich person in Massachusetts in 1990, then your growth rate, between 1990 and 2000 is going to be positively correlated with inequality which existed in Massachusetts in 1990.

If we take this finding seriously, it would indicate that extreme inequality, stagnation, and low intergenerational mobility are actually all social goods from the standpoint of the 1 percent. So, given our political class is entirely drawn from and funded by the top 1 percent, why would they have any other incentive but to immiserate the vast majority of Americans? The majority of congress are millionaires.

If you think about it, it makes sense. In a very unequal society, people are unable to move up the ladder and compete against elites for positions. If things like education and health care are too expensive for the common person to afford, elites and their relatives have the advantage and thus can command a higher premium on "knowledge." It also means more brutal competition for the remaining lower-level jobs, however, which means lower wages, and thus increased profits. (80 percent of stocks are owned by the top 10 percent of households)

It's also politically desirable. If the 99 percent are working harder and harder just to make ends meet, they have no time to participate in the system. They are too tired at the end of the day to care about much besides picking up the kids and plopping down in front of the tube, so they will be unable to seek out any information besides that which is beamed into their homes on the television (hence the highly desirable "low information voter").

In theory, the majority could unite and outvote the interests of the one percent at the polls. But as we see from the real world, this doesn't happen for a couple of reasons 1.) Elites keep the 99 percent constantly divided and at each others' throats by playing them off against each other - black against white, rural against urban, native against immigrant, educated against non-educated, professional against blue-collar, union against non-union, religious against non-religious, and by using cultural "wedge" issues to drive them apart - abortion, guns, gay marriage, terrorism, political correctness, and so on; and 2.) Using incessant propaganda that promotes the elites as uniquely virtuous and hardworking, and the poor and working classes as lazy, shiftless losers who can't hack it in the Market and are filled with envy and sour grapes, along with depicting the system as dispensing rewards fairly in accordance with hard work and skill (and not through luck, social connections, inherited wealth, unequal access to qualifications, and gaming the system).

The wealthy, on the other hand, are united in their goals - reduce the incomes and living standards of the majority to maximize their returns. While promoting "rugged individualism" and "bootstrapping," among the working classes, they collude and cooperate collectively to achieve their goals through various clubs and think tanks (Chambers of Commerce, the Club for Growth, business roundtables, Rotarianism, the list is endless) As the British showed in India, a small, united, disciplined minority can rule over a divided, disorganized and demoralized majority in essence forever.

I think economists need to get over the idea that just because they point out that inequality is bad for a society that the wealthy will somehow see the light. With the above data, we can see that it is actually good for them and they will fight to keep it. From the interview above, "If you take what we find in the paper, that the growth coefficient on inequality for the rich is positive, then they don’t have an incentive to fight inequality. For their growth rate, inequality is good. It undermines the case for a sort of self-interest of the rich to be more accommodating."

Coming back to the initial topic:

Younger Americans die earlier and live in poorer health than their counterparts in other developed countries, with far higher rates of death from guns, car accidents and drug addiction, according to a new analysis of health and longevity in the United States.Researchers have known for some time that the United States fares poorly in comparison with other rich countries, a trend established in the 1980s...

The panel called the pattern of higher rates of disease and shorter lives “the U.S. health disadvantage,” and said it was responsible for dragging the country to the bottom in terms of life expectancy over the past 30 years. American men ranked last in life expectancy among the 17 countries in the study, and American women ranked second to last.

“Something fundamental is going wrong,” said Dr. Steven Woolf, chairman of the Department of Family Medicine at Virginia Commonwealth University, who led the panel. “This is not the product of a particular administration or political party. Something at the core is causing the U.S. to slip behind these other high-income countries. And it’s getting worse.”

Car accidents, gun violence and drug overdoses were major contributors to years of life lost by Americans before age 50.

The rate of firearm homicides was 20 times higher in the United States than in the other countries, according to the report, which cited a 2011 study of 23 countries. And though suicide rates were lower in the United States, firearm suicide rates were six times higher.

Panelists were surprised at just how consistently Americans ended up at the bottom of the rankings. The United States had the second-highest death rate from the most common form of heart disease, the kind that causes heart attacks, and the second-highest death rate from lung disease, a legacy of high smoking rates in past decades. American adults also have the highest diabetes rates.

Youths fared no better. The United States has the highest infant mortality rate among these countries, and its young people have the highest rates of sexually transmitted diseases, teen pregnancy and deaths from car crashes. Americans lose more years of life before age 50 to alcohol and drug abuse than people in any of the other countries.

Americans also had the lowest probability over all of surviving to the age of 50. The report’s second chapter details health indicators for youths where the United States ranks near or at the bottom. There are so many that the list takes up four pages. Chronic diseases, including heart disease, also played a role for people under 50.

“We expected to see some bad news and some good news,” Dr. Woolf said. “But the U.S. ranked near and at the bottom in almost every heath indicator. That stunned us.”

Blogger Note: speaking of poor health, I've been under the weather lately with either severe Salmonella poisoning or the mother of all stomach flus. The fact that we had the coldest February/early March in history didn't help matters (it was 7 yesterday). That, along with a profound existential crisis, has made it hard to find motivation to write. Sorry for the lack of activity. I'm trying to slowly climb out.

1 comment:

Hang in there and take comfort knowing that Gates and his fellow billionaires are personally taking control of the nation's education policies in order to reform curricula that their own kids will never be taught. Or tested on and have their futures decided by. Oh, wait . . . sorry . . . .